the new hr

Managers should not lose the bigger picture in the scramble to optimise the
immediate future of their organisations.
Debasish Biswas, CIMA
decision
making
Think macro
Managers continuously
make decisions
that affect their
organisation’s future
cost, revenues, or
profit. For example,
they decide on
investment projects and estimate how the current
investment cash-out flows will be paid back by
future cash-in flows. They may engage in costcutting
operations, with the aim to enhance
the future margins they earn, in expensive
marketing campaigns, estimating that the return
on marketing will eventually be positive and that
the overall value of their firm is optimised. The
core feature of such decisions concerns the tradeoff
managers somehow need to make between
investments (cash-out flow) now, and returns
(cash-in flow) in the future. Making such tradeoffs
is difficult as they essentially come down to
comparing immediate, relatively certain decision
consequences with future, relatively uncertain
decision consequences.
Unfortunately, in practice, managers often
fail in this comparison and show behaviour that
runs against the goals of the organisation. For
example, they may not engage in an investment
project because future returns are considered
too risky; they may cut quality assurance costs
of their operations to increase their margins, but
may neglect the future negative consequences
on product quality and revenue; or may avoid
expensive marketing campaigns to protect their
current profits, thereby losing future revenues due
to underexposure of their products.
In such cases, managers could be said to suffer
from a managerial illness called ‘myopia’, a
term stemming from optometry, which denotes
people’s lack of ability to see at a distance. In
management accounting, it denotes managers’
tendency to optimise the present, at a cost to
the future. Managerial myopia is considered an
important problem, and one that defies many
proposed solutions. This model, however, is
not immune to managers’ overestimation of
immediate cash-out flows, underestimation of
future cash-in flows, or use of high discount
factors biased against the investment.
Moreover, some management accounting tools
may even aggravate, rather than alleviate, myopic
tendencies. Budgets and other yearly performance
contracts may force managers to cut costs, for
example by delaying marketing efforts that enable
them to meet their present targets but comes at a
cost to their future performance.
Cures for the problem of overemphasis
on current budgets, such as following the
balanced scorecard (BSC) logic or value-based
management (VBM), wrongly suggest that
myopia is a problem of metric choice. Rather,
myopia should be considered a behavioural
problem deeply rooted in the way people
behave in the social and economic contexts of
their organisations.
I NDIAN MANAGEMENT NOVEMBER 2015 41